- After Coke's 16.7% purchase of Monster shares I felt the upside may have been capped so I wanted to lock up some profits.
- I wanted to take my profits and put them into ONEOK, a safety play for the global turmoil going on right now.
- My return on investment in Monster turned out to be much better when compared to if I had kept my money in Kodiak Oil & Gas.
I recently closed my position in Monster Beverage Corp. (NASDAQ:MNST) from my growth portfolio because The Coca-Cola Company (NYSE:KO) bought a 16.7% stake in the company last week and I just wanted to lock up some profits. I ended up buying shares of ONEOK, Inc. (NYSE:OKE) because I wanted to put my money into a safety play. ONEOK Inc is a diversified energy company. Its business segments include ONEOK Partners; Natural Gas Distribution; and Energy Services. On August 5, 2014, ONEOK reported second quarter earnings of $0.33 per share, which missed the analysts' estimates by $0.03. In the past year, the company's stock is up 35.12% excluding dividends (up 38.24% including dividends) and is beating the S&P 500 (NYSEARCA:SPY), which has gained 19.96% in the same time frame. I initiated my position in ONEOK on August 19, 2014 and am up 1.12% on my position.
I sold my shares in Monster because I wanted to lock in some profits in the portfolio. Monster through its subsidiaries, develops, markets, sells, and distributes beverages such as ready-to-drink iced teas, lemonades, single-serve juices juice cocktails and fruit beverage. On August 7, 2014, the company reported second quarter earnings of $0.81 per share, which beat the analysts' estimates by $0.06. In the past year the stock is up 51.93% and is beating the S&P 500, which has gained 19.96% in the same time frame. Let's now take a look at both stocks on a fundamental and financial basis.
Some investors like to look at the trailing twelve month P/E ratio because it tells them how the stock is valued with respect to earnings which were actually earned. I mainly like to look at the forward year P/E ratio to get an idea if earnings for the coming year are about to increase or decrease. I don't like paying more for a company's future earnings than what I was paying for the previous year because it indicates that the earnings for the coming year are going to be less than the previous year. A reduced future year earnings indicates either a reduction in revenues or major expenses are being incurred.
I also like to look at the 1-year PEG ratio. This metric is the trailing twelve month P/E ratio divided by the anticipated growth rate for a specific amount of time. This ratio is used to determine how much an individual is paying with respect to the growth prospects of the company. Traditionally the PEG ratio used by analysts is the five year estimated growth rate, however I like to use the one year growth rate. This is because as a capital projects manager that performs strategy planning for the research and development division of a large-cap biotech company I noticed that 100% of people cannot forecast their needs beyond one year. Even within that one year things can change dramatically. I put much more faith in a one year forecast as opposed to a five year forecast. The PEG ratio some say provides a better picture of the value of a company when compared to the P/E ratio alone.
An additional value I like to look at is the earnings per share growth for the coming year. This metric is really simple, it is essentially taking the difference of next year's projected earnings and comparing it against the current year's earnings. The higher the value the better prospects the company has. I generally like to see earnings growth rates of greater than 11%. Again, in this situation I like to take a look at the one year earnings growth projection opposed to the five year projection based on what I discussed in the PEG section above.
Let's take a look at how Monster and ONEOK stack up against each other on a fundamental basis in the table below.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
Because both stocks are considered growth stocks due to their extremely high earnings growth expectations one would anticipate their earnings valuations to be expensive. As we can see from the table above, both Monster and ONEOK are expensive on trailing earnings (I consider a P/E value above 30 to be expensive). Additionally, on future earnings both companies are also expensive. But because both stocks have different growth profiles it's important to measure the PEG ratio. By looking at the PEG ratio I believe that both stocks are expensively valued, but with ONEOK being a better value with respect to growth rate. Hence on a fundamental basis I believe ONEOK to be the better stock.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. In my growth portfolio however I will forego the dividend aspect of the financials if a company doesn't pay one. Return on assets is the metric which shows how profitable a company is relative to its total assets, telling us how efficient a management team is at using its assets to generate earnings. It is best to compare ROA values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. The assets of a company are comprised of both debt and equity. The higher the ROA value, the better, because the company is earning more money on less investment.
Return on equity is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. It is best to compare ROE values of companies within the same industry as it is industry dependent, but for the purposes of this tournament I will not be utilizing that rule of thumb. Equity is determined as the net income for the full fiscal year before dividends paid to common stock holders but after dividends to preferred stock, but does not include preferred shares. The higher the ROE value, the better.
ROI is an important financial metric because it evaluates the efficiency of an investment that a company makes and if an investment doesn't have a positive ROI, then the investment should not be made. It is calculated by dividing the difference of cost of investment from gain from investment by cost of investment. It is best to compare ROI values of companies within the same industry as it is industry dependent, but for the purposes of this tournament, I will not be utilizing that rule of thumb. The higher the ROI value the better.
Let's take a look at how Monster and ONEOK stack up against each other on a financial basis in the table below. As we can see from the table, Monster is definitely the better financial manager of the two as it beats ONEOK on all financial metrics I look for in a company with the exception of paying a dividend.
Payout TTM (%)
I sold Monster for a 40.13% gain or 16,823.73% on an annualized basis. Again, I only sold Monster because it made me a great gain and I wanted to lock up some profits. Monster is a very excellent company with great near- and long-term earnings growth expectations, but is expensively valued based on 2015 earnings estimates.
Monster's future growth potential consists of being able to distribute energy drinks globally, and that particular aspect of the growth has come to fruition with Coke's best in class distribution network. ONEOK on the other hand is not only a great growth stock, but it is dividend paying one at that. I know it's difficult to think of a utility company as a growth stock, but as I've shown in the fundamentals table above it has some great near-term growth potential.
If global risks actually exist, then I want to be focused on American based companies. ONEOK is one such company, having increased its dividend three times in 2014 alone and is one of the biggest natural gas distributors in the country. The company has been on a tear in the past year, beating the S&P500, and keep in mind this is a utility stock.
Because I swapped out Kodiak Oil & Gas Corp. (NYSE:KOG) for Monster in my growth portfolio, it is only fair that I provide an update for the swap-out period. I held Monster from July 22 through August 15, 2014 and during that time, Monster is up 44.41% while Kodiak was down 5.83%, and the S&P 500 was down 0.94%. The trade has worked out phenomenally for me and I hope the ONEOK trade does the same.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!